Niobrara oil seen as potential savior for West Coast refiners

Companies from Noble Energy Inc. to Whiting Petroleum Corp. are ramping up output in the Niobrara shale oil play near the Rocky Mountains that may help save U.S. West Coast refiners from dwindling supplies in their own region.

The formation spread across parts of Colorado, Kansas, Nebraska and Wyoming is estimated to hold as much as 2 billion bbl of oil, Energy Information Administration data show. Niobrara’s oil and lease condensate output will reach a record 304,434 bpd this month, the agency said.

The Rocky Mountains play may be a godsend for Western refiners because its crude closely matches the characteristics of oil from the region’s largest domestic supplier, Alaska’s North Slope, where output has declined every year since 2002. A slide in Alaska and California oil production has forced West Coast refiners to increasingly rely on foreign imports and oil shipped by rail from other states.

“We’ve had a number of shipments move by rail, but I don’t think any of it has gone to the West Coast yet,” Gary Willingham, Noble’s senior V.P. of U.S. onshore, said in Denver during a conference on Bakken and Niobrara crudes. “It’s certainly part of our plan to have that flexibility. We want it to go where the demand is and where the best price is.”

The posted price for oil from the Denver-Julesburg basin, where the Niobrara is located, rose $1 to $85.05/bbl Friday, according to the marketing division of Plains All American Pipeline LP.  Alaska North Slope oil rose $1.20 to $107.39/bbl, data compiled at 4:16 p.m. New York time show.

Noble, the largest producer in the Niobrara, expects its output from the basin to surpass 100,000 boed this year and reach 250,000 by 2018, Willingham said at the 2014 DUG Bakken and Niobrara conference. Whiting has three rigs running in its Redtail prospect there and plans to add a fourth in August.

Oil from the Niobrara matches the medium crude Alaska North Slope so well that it may be “demanded by folks on the West Coast,” said Mark Smith, V.P. of development, supply and logistics for Tesoro Corp., the largest refiner in the West.

Niobrara crude “fills the bill” for the West Coast, Jim Volker, Whiting’s CEO, said at the conference. Oil from the formation will have to compete against other Western plays such as the Uinta basin of Utah to supply the region, he said.

Tesoro is developing a terminal at the Port of Vancouver, Washington, with Savage Services Corp. that would take oil off rail cars and load it onto marine vessels for delivery.

“That Niobrara stuff could easily take up space” at the terminal, Smith said.

Wyoming, home to the Guernsey oil-pipeline hub, issued permits last year allowing projects with collectively more than 459,000 bpd of crude trans-loading capacity. It has approved permits for two more sites this year with as much as 146,000 bpd in capacity.

Musket Corp. runs an oil-by-rail terminal in Windsor, Colorado, that began loading unit-trains at the beginning of this year. The White Cliffs pipeline that carries oil from the basin to Cushing, Oklahoma, is scheduled to double capacity to 150,000 bpd this year.

California, home to two-thirds of the West Coast’s refining capacity, received 55,025 bbl of oil by rail from Colorado in December, the most ever for that month, and took in a record 87,951 from the state in May 2013. Colorado oil production reached a record 206,000 bpd in October.

While companies including Noble and Whiting are accelerating drilling in the Niobrara, Continental Resources decided to allocate spending elsewhere this year, said John Kilgallon, the company’s V.P. of investor relations.

“There has been some success by some operators there, but we’re not one of them,” Kilgallon said by telephone March 28.

Providing useful resources, articles and writings on crude oil, other petroleum products, energy and gas. By Blockline and Associate Ltd Nigeria Ltd, online.

Total launches Kaombo ultra-deep project offshore Angola

Total and its JV partners have made the final investment decision to develop the ultra-deep offshore Kaombo project in Angola. With a production capacity of 230,000 bpd, Kaombo will develop estimated reserves of 650 MMbbl. Following an intensive optimization exercise, the project’s capital expenditure to reach full capacity was reduced by $4 bn to $16 bn, with an expected start-up in 2017.

“With the launch of Kaombo, the upcoming start-up of CLOV and three exploration wells planned in the Kwanza basin this year, Angola remains a priority country for Total,” outlined Yves-Louis Darricarrere, President Total Upstream. “While continuing our commitment to develop the Angolan oil industry, Total has significantly optimized the project’s design and contracting strategy in recent months. Kaombo illustrates both the Group’s capital discipline and objective to reduce capex.”

Located approximately 260 km offshore Luanda in water depths ranging from 1,400 to 1,900 m, the Kaombo project will develop six of the 12 discoveries already made on Block 32. The six fields (Gengibre, Gindungo, Caril, Canela, Mostarda and Louro) cover an area of 800 sq km in the central and southeast part of the block.

The Kaombo development scheme includes 59 subsea wells connected through around 300 km of subsea lines to two FPSOs, each with a production capacity of 115,000 bpd. The two FPSOs will be based on conversions of very large crude carriers (VLCCs) into production units. Associated gas will be exported to the onshore Angola LNG plant.

The Kaombo development includes a substantial level of local content. Over 14 mn man-hours of fabrication and construction works will be performed locally in Angolan yards which will be used for equipment fabrication and assembly.

Total is the operator of Block 32, with a 30% stake, alongside Sonangol P&P (30%), Sonangol Sinopec International (20%), Esso Exploration and Production Angola (Overseas) (15%) and Galp Energia (5%).

Providing useful resources, articles and writings on crude oil, other petroleum products, energy and gas. By Blockline and Associate Ltd Nigeria Ltd, online.

Kentz awarded $570 million contract for Ichthys LNG project

Kentz Corporation Limited has announced the award of a $570m (AUS$615m) contract to it' s Australian subsidiary for the electrical and instrumentation (E&I) construction packages for the Ichthys Project Onshore LNG Facilities in Darwin, Australia.

This contract was awarded by JKC Australia LNG, a JV between JGC, KBR and Chiyoda. JKC is responsible for the engineering, procurement and construction of the Ichthys LNG Project' s onshore facilities, including the gas processing plant at Blaydin Point.

The contract, for which site preparation work will commence in August 2014, has a duration of 30 months and will provide more than 1,200 jobs for construction personnel. The contract scope includes the provision of services for site wide E&I installation on a unit rate re-measurable basis for the two process trains and utilities, and additional pre-commissioning and commissioning expertise.

The Ichthys LNG Project is a JV between INPEX group companies (the operator), major partner Total and the Australian subsidiaries of Tokyo Gas, Osaka Gas, Chubu Electric Power and Toho Gas. It is expected to produce 8.4 million tonnes of LNG and 1.6 million tonnes of LPG per annum, along with approximately 100,000 barrels of condensate per day at peak.

Michael Murphy, Group President Construction and TSS of Kentz, commented: "It is extremely pleasing to secure a further major construction contract on the Ichthys Project Onshore LNG Facilities, in this instance for the E&I construction contract."

Providing useful resources, articles and writings on crude oil, other petroleum products, energy and gas. By Blockline and Associate Ltd Nigeria Ltd, online.

OPEC sees lower demand as U.S. output rises

OPEC trimmed estimates for the amount of crude it will need to pump this year amid rising U.S. supplies, and predicted that a “supply buffer” will accumulate before demand peaks in the summer.

The Organization of Petroleum Exporting Countries, responsible for 40% of the world’s oil supply, will need to provide an average of 29.6 MMbpd of crude this year, according to its monthly market report. The assessment is 100,000 bpd lower than last month’s because of higher output from the U.S. and Canada, and in line with the group’s March production level. Oil inventories, currently “tight,” will rebuild as demand sags in the second quarter, it said.

Reliance on OPEC is being frayed as the U.S. pumps the most crude in more than two decades by tapping shale formations in North Dakota and Texas. Brent crude futures have lost 2.9% this year, trading for $107.58 a barrel today in London, amid speculation OPEC members Libya and Iran may restore supplies curbed respectively by political unrest and sanctions. OPEC would “accommodate” their return to the market, group Secretary-General Abdalla El-Badri said in Doha, Qatar, yesterday.

“Demand for OPEC crude for 2014 was revised down” from last month “reflecting the upward adjustment of non-OPEC supply,” the group’s Vienna-based secretariat said in the report. “Oil markets have now entered into a period of lower demand, which provides the opportunity to re-build tight product inventories.”

OPEC’s 12 members reduced production by 626,200 bpd to 29.6 MMbpd in March because of declines in Iraq, Angola and Libya, according to secondary sources cited by the report. Iraqi production fell most, declining 288,400 bpd to 3.2 MMbpd, according to the report, which didn’t specify a reason.

The second-largest drop was in Angola, where output fell by 154,800 bpd to 1.5 MMbpd, followed by Libya, where supplies slipped by 117,700 a day to 243,000 a day. Saudi Arabia, the group’s biggest member, trimmed output by 80,500 bpd to 9.7 MMbpd.

The group boosted its projection of supplies from outside OPEC by 60,000 bpd. Non-OPEC producers, led by the U.S., Canada and Brazil, will increase output by 1.4 MMbpd in 2014 to 55.6 MMbpd.

The organization kept its forecast for global oil demand in 2014 stable. World consumption will increase by 1.1 MMbpd, or 1.3%, to 91.2 MMbpd, the report indicated.

OPEC’s 12 members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the U.A.E. and Venezuela. The group will next meet on June 11 in Vienna to discuss output targets.

Providing useful resources, articles and writings on crude oil, other petroleum products, energy and gas. By Blockline and Associate Ltd Nigeria Ltd, online.